EAST MIDLANDS COMMERCIAL PROPERTY SEES STABLE INVESTMENT VOLUMES IN FACE OF ECONOMIC INSTABILITY

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DESPITE a tumultuous economic year, the East Midlands commercial property market enjoyed almost £1.2 billion of investment last year, remaining resilient against the national downturn, our new report reveals.

Our much anticipated Market Insite 2024 report showed that investment in the East Midlands was down only 12% on the previous year and 20% on the five-year average.

That was against a national backdrop of commercial property investment activity projected to total around £37 billion in 2023 – a drop of 39% on the previous year.

Ben Robinson, our head of investment, said: “The strong headwinds of high interest rates translating to high borrowing costs, inflationary pressures and geopolitical uncertainty have caused many investors to slow down or pause decisions to buy and sell. 

“As expected, the region was dominated by the industrial market, and although investment volumes were largely flat compared to last year, at £734m, the sector accounted for 62% of all activity. 

“Surprisingly, industrial volumes now trail the five-year average by more than 20%, which is probably more indicative of a lack of stock than any cooling of investor appetite in this sector.

“Retail was the next most active sector, at 22% of market activity, with volumes increasing by 38% to £262m with office investments largely flat at £84 million.”

Meanwhile, the ‘alternatives’ market – beyond the main offices, retail and industrial sectors – which had been experiencing a growing market share over recent years, experienced “significant investor pullback” with investment volumes falling to £112m, 68% down on the year before and 50% down from the five-year average. Overall, prime yields continued to drift out over the year by 25 to 50 basis points.

The findings were revealed to an audience of industry professionals at Innes England’s 17th annual Market Insite event in Nottingham - the first in-person event for four years. Further events are due in Leicester, Derby and Birmingham.

The report details key deals, analysis, and trends in commercial property across the Midlands as well as describes the outlook for the year ahead.

Across the East Midlands, the stand-out deals included:

  • In Leicestershire, the £29.75 million purchase of the 297,300 sq ft Tesco chilled distribution facility at Hinckley by global logistics real estate group Realterm US
  • In Derby, two deals stood out - the £18.5 million purchase of the 103,340 sq ft B&Q by US investment trust Realty Income Corporation and Starboard Hotels’ £14.4 million purchase of the leisure park Derby Riverlights
  • In Nottinghamshire, Brookfield Asset Management’s purchase of the 1.2m sq ft former Wilko’s distribution centre in Worksop, from DHL Supply chain for £88m

Peter Doleman, our director and Leicester head of agency, commented: “the industrial market within our core areas remains remarkably resilient, with Derby and Leicester’s take-up above the ten-year average for the third consecutive year. Nottingham remained in line with its longer-term average.”

Peter said the big box market continues to positively affect the region, with take-up of 1.25 million sq ft in Leicestershire alone, with the largest deal being the 493,000 sq ft built to suit deal by Persimmon’s timber frame subsidiary in Loughborough.

Elsewhere, Hello Fresh took 430,000 sq ft in Spondon and in Nottingham, Vision Express moved to a new warehouse of 100,845 sq ft on the Fairham Business Park. 

“On the supply side, Leicester recorded a significant increase in supply to 4.5 million sq ft, primarily of Grade B accommodation, brought about by occupiers relocating to Grade A space.  The Grade A market will soon be bolstered by further significant supply at Magna Park South later on in the year.” he said.

St. Modwen Park has redressed historically low levels of Grade A accommodation in Derby, with a further 200,000 sq ft in Phase 2 approaching practical completion following on from the successful completion of phase 1 and lettings to Vaillant, Getinge and Kia.

Peter added: “In Nottingham, supply edged upwards, rising to 1.4 million sq ft - its highest for seven years - with the largest building being Nottingham 360 on Firth Way, totalling 362,000 sq ft.

“Off the back of this very positive marketplace, rents and prices generally have continued to trickle upwards.”

Speaking on the office sector, director and Nottingham office agency head Craig Straw said: “Nottingham and Derby’s take up figures were mostly in line with the year before, at 314,000 sq ft and 224,000 sq ft respectively.

“Leicester’s figures showed a 50% increase but historically its numbers have been more volatile, with a 40% downward swing the previous year,” he said. With this in mind, we can still find confidence in the fact that the figures are broadly in line with the five-year average.”

Craig noted how Derby and Leicester’s office supply reduced to 80% of the previous year’s figures. Nottingham’s supply pipeline didn’t follow suit, instead ticking up by around five per cent with Grade A supply accounting for 40% of stock.

Craig also said there was a continuing trend in attracting employees back to in-person workdays rather than working from home, citing Cubo’s acquisition of Standard Court in Nottingham to expand their managed workspace offering in the city.

He added: “The most significant dynamic for the office market remains the impact of hybrid working policy, providing employees with the flexibility and support to work from home while still encouraging visits to the office for the benefits this undoubtedly brings.”

Sam Hall, our associate director, discussed the strength of the food-on-the-go and drive-thru market, where demand was still at a 10-year high, despite a decrease in openings due to rising construction costs and planning process delays.

Sam also discussed the fall of retail giant Wilko’s in 2023, saying it was not indicative of a larger trend, as other discount retailers had taken on 120 of its stores. He added: “Out of town retail and retail parks have remained resilient across 2023, with discount retailers occupying space in both storefronts and warehousing.”

While the UK’s retail sector saw 120,000 job losses and more than 10,000 shop closures, national retail vacancy rates across high streets, shopping centres and retail parks reached their lowest point since the first half of 2021, said Sam.

Sam said: “The high street is not dead, but it will require retailers to breathe new life into it, as well as their own concepts, to ensure their continued success.”

Sam also mentioned a notable trend in 2023 - the surge in electric vehicle charging point operators seeking sites and opportunities, leading to a 50% year-on-year increase in available charging points in the UK.

Matt Hannah, our managing director, said: “The industrial market has continued to deliver strong results with good occupier demand and rising rents across the region generating confidence for investors and developers to support new supply. Looking at the bigger picture, all property investment volumes reflected a lack of activity in the market and investor confidence needs to improve to drive more activity across the region.

“As always, our team has done an incredible job of collating the data. We are looking forward to 2024 and what that brings as we continue to expand our team in both the East and West Midlands.”

Our Market Insite events were attended by hundreds of industry professionals. To learn more, and read the full report, visit: https://www.innes-england.com/assets/downloads/Market_Insite_Brochure_2024.pdf